The benefits of this plan are not clear. Many public defined benefit plans provde a benefit rate based on the highest average salary. In generous plans such as Colorado PERA, the benefit rate is 2.5% for retirees reaching the rule of 80 (service years plus age) with at least 50 years of age. A large number of retirees receive 75% of their highest average salary beginning in their 50s. The net result is that plans such as Colorado PERA are effectively paying large amounts of deferred compensation in the range of several hundred thousand for lower wage workers to 1 to 2 milliion dollars for higher paid administrators.
This Texas city plan is different. Here is the benefit summary from the TMRS website:
Your monthly benefit at retirement is based on your member deposits and interest, the city’s matching funds, other credits, your life expectancy (and your beneficiary’s, if you choose certain options), future account interest assumptions as set by law, and the monthly payment plan you choose.
It appears that members earn a bond rate interest similar to a long term bond fund. At retirement, the account balances are annuitized at some rate. I am not sure if the annuitized interest rate is above the rate paid by the private sector for lifetime income funds. It seems that this plan is not very generous. The major benefit seems to be that retirees can receive both social security and this plan without having to contribute to social security while working for a Texas municipality. If a retiree earned 40 quarters for social security before city work, the retiree can receive benefits from both despite rather little time in social security.
Is this a great country or what ?
A big part of the problem is that retirees can select an annuity with annual cost of living increases, something quite uncommon in private company retirement plans.
Great deal for the retirees. Unlimited exposure for the managers of the pension fund.